The Things about Buying into a Bond Product

Bond is a type of fixed income financial instrument backed by some government or company.

It should be, but its price is also correlated to current market rate.

When market rate goes Up, bond prices goes Down. The opposite side happens same too.

When get into more detail, there are actually more things.

If buying the bond price below face value, the indicated yield calculates in price gain till maturity.

If buying above face value, the overall yield calculates in the price drop till maturity.

There is a complicated formula to calculate overall yield which assumes reinvestment of all future distributions at current rate.

But I think complicated things can be read simple way.

If you'd cheaper bond price, buy below face value (means its face yield rate is below market rate).

If you'd have better short term yield, buy above face value with a higher coupon rate.

When market rate goes up and down, the bond prices can vary quite significantly too.

It's not surprising that within 1 year, the bond price can go up / down by 10%-15%. So if you sell it, there could be a gain / loss besides distribution.

If look at the long term bond ETF products, e.g. TLT, the price went down a lot ~40% since the FED started to increase interest rate.

Here is the thing, for a bond product, provided no default, if you hold till the end of 20 years, the yield is for sure to happen based on the entry price point.

If you buy an ETF? it doesn't have an ending date as the holdings are refreshed regularly.

Disclaimer: This post is not a call to buy or sell. Plse do your own analysis and make investment decisions.